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  • Writer's pictureHarry N. Stout

95- Five Key Money Aspects of the Stimulus Initiatives

Updated: Jan 15, 2021

Now that we have been through three rounds of COVID-19 economic stimulus packages from Congress, I thought it was a good idea to look back on five of the major provisions that could impact your money. Not all situations will apply to everyone, but I'll highlight the provisions that have the most possible impact.

Taxes On Unemployment Compensation

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Congress put in place enhanced unemployment benefits of $600 per week in addition to the normal state determined amounts for workers displaced by the pandemic. These benefits are welcome financial relief for millions of Americans. One key aspect of unemployment benefits you must remember is that all such benefits, including the enhanced benefits Congress passed, are taxable for federal income tax purposes and sometimes by the state in which you live. Given all that people have been through, it would be a hard pill to swallow to find out they owe a large amount of income taxes when they file their tax returns in 2021.

If you will be receiving benefits, it would be a good idea to go to and use the free estimated tax calculator available to make sure you know the income taxes you will owe. You should also visit your state’s income tax website to find out if the unemployment payments are taxable and what amount you will owe. You don’t want to be surprised in 2021.

Taxation of Stimulus Payments

A key question people have raised is whether the stimulus payments are taxable for federal and state tax purposes? To get answers to this question and others related to stimulus payments, go to the tab entitled Economic Impact Payment Information Center on

The answer to this question is found in A31 under frequently asked questions, which states as follows: “No, the Payment is not includible in your gross income. Therefore, you will not include the Payment in your taxable income on your Federal income tax return or pay income tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return. A Payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.”

So there you have it. The stimulus check you have or will receive is not taxable for income tax purposes, nor does it impact your eligibility for federal assistance or benefit programs.

Best Use of the Stimulus Payments

Other major questions people are asking include: What is the best use of the stimulus payments? What should I do with the money? The answer depends on the financial situation of the person asking the questions. In my view, the next 24 months are going to be very uncertain as we recover from this event. As such, having extra cash on hand to weather the storm is most important. Unless you need the money right now for essential living expenses, I would add it to my emergency fund until we get a better understanding of where the economy is going and how many jobs will be lost after the country fully reopens.

Saving Money for Retraining

I believe that we will see some major changes to many of the companies we've done business with for years. In particular, retail stores, restaurants, entertainment facilities, and sports franchises will see a net loss of jobs. It is going to become more and more important for individuals to have money set aside to use to retrain themselves in case they lose their job. This amount may need to cover the costs of additional education, vocational classes or the need to take a lower paying job for a period of time to gain practical experience in a new field. I know this is but another item to have to cover out of your emergency fund, but I believe it is a really important item to plan for.

Tapping Your 401k Plan for Living Expenses

If you have lost your job because of the pandemic or been furloughed and you have a 401(k) account, you may be able to withdraw money from the account to tie you over during the period of un- or underemployment. Overall, I normally believe that such accounts are there to help you accumulate funds for later life and should not be touched unless all other options are unavailable. The pandemic will likely be an exception to the rule.

As part of the stimulus package, Congress enacted section 2202 of the CARES Act to allow you to access funds from your 401(k) accounts without the normal penalties and repayment provisions. In particular, you can take a withdrawal of up to $100,000 from your retirement accounts, including 401(k)s or individual retirement accounts, without the usual early withdrawal tax penalty of 10%. These "coronavirus-related distributions" are only available this year. You can pay taxes on the money you take out over a period of three years or pay no tax if you pay it all back.

The new law also allows you to borrow up to $100,000 from your 401(k) and delay payment for up to one year. Here's the catch: Your employer has to implement these provisions — and not all employers are doing so. And if you borrow from your 401(k) and permanently lose your job, your entire loan balance is generally due within 60 days. Again, for complete information on this, please go the website and enter Section 2202 in the search box.


Congress has worked to put in place a number of economic subsidies, payments and favorable tax provisions to offset the financial impact of COVID-19 on individuals and families. Each of these benefits needs to be understood in that your money may be impacted in ways you did not understand. As I have written, the next 24 months will have many money ups and downs. You need to be aware of what Congress has put in place and how it impacts you.

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